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Keystone Dedicated Logistics, Inc. v. JGB Enterprises, Inc.

Superior Court of Pennsylvania

August 6, 2013

KEYSTONE DEDICATED LOGISTICS, INC., Appellee
v.
JGB ENTERPRISES, INC., Appellant

Appeal from the Judgment Entered March 16, 2012, In the Court of Common Pleas of Allegheny County, Civil Division, at No. G.D. 08-021389.

BEFORE: DONOHUE, SHOGAN and WECHT, JJ.

OPINION

SHOGAN, J.

This is an appeal by Appellant, JGB Enterprises, Inc. ("JGB"), defendant below, from the judgment entered March 16, 2012, [1] following a jury verdict awarding Appellee, Keystone Dedicated Logistics, LLC ("Keystone"), plaintiff below, damages of $70, 000.00 in its breach of contract claim against JGB. Verdict Sheet, 12/2/11, at 1. We vacate the judgment and remand for a new trial on damages.

JGB, located in Liverpool, New York, is an industrial hose distributor owned and operated by Jay Bernhardt. N.T., 12/1–2/11, Vol. II, at 305. JGB receives about 10, 000 contracts per year, which is approximately eighty percent of JGB's business, from the United States Department of Defense ("DoD"). Id. at 306–307. The DoD uses a scoring system to evaluate contractors' on-time deliveries and selects contractors based upon the combination of technical ability, price, and score. Id. at 307–308. JGB attributes its frequent contracting with the DoD to its superior on-time delivery score. Id.

Keystone, located in Carnegie, Pennsylvania, is a national freight logistics company that negotiates, services, and manages freight contracts for clients at a cost savings. N.T., 12/1–2/11, Vol. I., at 37–38, 137–138. Keystone, through its former national sales manager, Michael Wagner, contacted JGB in September of 2007, offering it the possibility of freight savings through Keystone's logistic services. Id. at 75, 78–79. Mr. Bernhardt, who received the call, was interested in the possibility of cost reduction with continued service quality and sent prior freight invoices to Keystone for its analysis. Id. at 80.

On October 30, 2007, Mr. Wagner traveled with a Keystone sales representative to JGB's headquarters where they met with Mr. Bernhardt to discuss Keystone's proposed Transportation Services Agreement ("Agreement"). N.T., 12/1–2/11, Vol. I, at 81–82; Agreement, 10/7/07. Randall Tomasino, JGB's production and traffic manager, and JGB's president also were present at the meeting. N.T., 12/1–2/11, Vol. I, at 82; N.T., 12/1–2/11, Vol. II, at 331. During the meeting, Mr. Wagner explained the procedure Keystone would follow if JGB signed the Agreement. N.T., 12/1– 2/11, Vol. I, at 85. Keystone would make a bid request with freight carriers, prepare a Benchmark Rate Calculation ("Benchmark") based on JGB's current rates for comparison to the submitted bids, and subsequently meet with JGB to select the carrier. Id. at 85–86, 88, 93. Any savings below this Benchmark would be split between JGB and Keystone. Agreement, 10/7/07, at Schedule A, ¶ 4. Mr. Wagner also noted that Keystone provided a one-year trial period to new clients. N.T., 12/1–2/11, Vol. I, at 85; N.T., 12/1– 2/11, Vol. II, at 342–343. Throughout this process, JGB representatives emphasized the importance of service and their preference to continue with UPS Freight, if possible. N.T., 12/1–2/11, Vol. I, at 138–140; N.T., 12/1– 2/11, Vol. II, at 309–314, 340. After Mr. Wagner's presentation and without further review, Mr. Bernhardt signed and dated the Agreement. N.T., 12/1–2/11, Vol. I, at 85; Agreement, 10/7/07, at 2. The parties did not enter the effective date in paragraph four. Agreement, 10/7/07, at 1.

The Agreement's language relevant to this appeal is as follows:
4. Term and Termination
The initial term of this Agreement shall begin on ________, 2007 ("Effective Date") and shall remain in full force and effect for forty eight (48) consecutive months from the date that the parties agree on carrier pricing; provided, however, in the event that the parties are unable to agree on carrier pricing within days of the Effective Date, either party may terminate this Agreement upon written notice to the other.
* * *
One Year Trial Period – Early Termination: If after twelve months (365) days of this Agreement and prior to the completion of the 15th month of this Agreement JGB no longer desires to utilize the services of [Keystone], JGB may elect to terminate this Agreement. To terminate this Agreement, JGB must deliver a written cancellation notice to [Keystone] and also provide [Keystone] with an opportunity to meet JGB in person. If after JGB and [Keystone] meet in person JGB desires to follow through with the termination of this [A]greement, Cancellation will take effect 90 days from the date of the meeting. If JGB terminates this [A]greement, JGB shall only be obligated to pay for any services rendered by [Keystone] pursuant to this Agreement and up to the effective date of termination.
Standard of Services provided – General Termination: This Agreement can be terminated at any time "for cause" by providing written notice to the other party. "For cause" is defined as either party being in default of its commitments set forth in this Agreement and attached schedules. If either party serves written notice of said termination "for cause", the other party shall have thirty (30) days to remedy the default.

Agreement, 10/7/07, at 1–2 (emphasis in original).

The Agreement continues on "Schedule A, " which provides as follows:
[Keystone] will be authorized to negotiate rates on behalf of JGB Enterprises, Inc. and JGB Enterprises, Inc. agrees to utilize those freight companies when said freight companies provide a cost savings over current programs and meet expected service levels defined by JGB Enterprises, Inc.
* * *
Upon review of freight invoices from JGB Enterprises, Inc., [Keystone] will establish a "Benchmark Rate Calculation" which is defined in Schedule "B" and will be approved and agreed upon by both parties. JGB Enterprises, Inc. will compensate [Keystone] by the formula set forth below for all recognized freight savings. [Keystone] shall calculate transportation savings defined as "Benchmark Rate Calculation" less [Keystone] transportation arrangement or other transportation arrangements that are less than "Benchmark Rate Calculations[.]" The difference shall be the "Transportation Cost Savings[.]"

Agreement, 10/7/07, at Schedule A, ¶¶ 2, 4. Below these paragraphs, Schedule A delineates the saving distribution at fifty percent to each party. Id. at Schedule A, ¶ 4.

After the initial meeting, there was some delay in acquiring the materials from JGB necessary to prepare the bid request and the Benchmark. N.T., 12/1–2/11, Vol. I, at 88–90. Once Keystone acquired these materials, attained carrier bids, and prepared the Benchmark, the companies' representatives met again. Id. at 90–92. On March 11, 2008, JGB's representative, Mr. Tomasino, signed the Benchmark documentation, and despite his prior stated preference to utilize UPS Freight, he agreed to use FedEx Freight as its carrier. N.T., 12/1–2/11, Vol. I, at 87; Agreement, 10/7/07, at Appendix B. This decision was based on FedEx Freight's low bid combined with Keystone's demonstration of FedEx Freight's service quality. N.T., 12/1–2/11, Vol. I, at 94, 100–101.

In the ensuing weeks, JGB transferred its freight orders to FedEx Freight. N.T., 12/1–2/11, Vol. I, at 96; N.T., 12/1–2/11, Vol. II, at 349. JGB began experiencing problems as of April 1, 2008.[2] N.T., 12/1–2/11, Vol. I, at 172; N.T., 12/1–2/11, Vol. II, at 365. In total, JGB experienced twelve to sixteen shipment issues with FedEx Freight out of approximately 1, 100–1, 200 total shipments. N.T., 12/1–2/11, Vol. I, at 107, 172–173. Although Keystone satisfactorily addressed these issues as they arose, Mr. Tomasino expressed concern regarding JGB's ability to use FedEx Freight if the issues continued to occur. N.T., 12/1–2/11, Vol. II, at 366–368.

On July 22, 2008, Mr. Tomasino, in his capacity as production and traffic manager, sent an e-mail[3] to Keystone notifying it of JGB's intent to terminate the contract. N.T., 12/1–2/11, Vol. I, at 105; N.T., 12/1–2/11, Vol. II, at 370–371. Mr. Wagner sent a follow-up e-mail indicating his preference to hold a conference call to discuss JGB's termination of the contract. N.T., 12/1–2/11, Vol. I, at 105; N.T., 12/1–2/11, Vol. II, at 370– 372. During this conference call, which took place later that day, Mr. Wagner reminded Mr. Tomasino of the options for cancellation. N.T., 12/1– 2/11, Vol. I, at 105–106. Mr. Tomasino sent a follow-up e-mail stating the following:

As for the contract, it is signed by you and dated October 30th, 2007. As the contract states there's a one year trial period. So that would expire October 30th, 2008, and that you require 60-day notification not to continue on a second year with JGB. JGB will honor the contract as dated ...

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